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For starters, the President doesn't create jobs, the economy does.
Secondly, here's a good op/ed piece from the right-wing extremist Wall Street Journal.
Jobs jobs jobs
| quote: | Jobs, Jobs, Jobs
By DAVID MALPASS
April 6, 2004; Page A16
The stock market reacted positively to Friday's strong jobs report, especially growth-sensitive Nasdaq, even though the bond market began to price-in earlier interest rate hikes. The report showed that more than half a million net new jobs were created in the first quarter. Stocks supposedly fear rate hikes and value companies that scrimp on employees. And they've already priced in all-time record corporate profits. So why the celebration?
The explanation for the stock rally after the jobs report is twofold. Despite its many flaws, the jobs report has become a key election issue -- the stronger the report, the better the chances for President Bush's re-election -- and this election will likely determine the taxation of equities, high or low, for years to come.
The stock-market logic goes like this: The 2003 tax cut lowered taxes on stocks, but only through 2008. The extension of the tax cuts is critical to the value of equities, which have added $3 trillion in market capitalization since the 2003 cuts were enacted. Because the candidates have been quite clear on their stance toward extending the key growth provisions of the 2003 tax cut, a Bush victory and Republican gains in the Senate likely mean lower taxes on capital, more capital and higher stock prices -- and the reverse if John Kerry wins.
The second reason equities liked the strong jobs report is because it might finally break through the risk aversion still dominating corporate America's decision-making. Given the trauma of the 2000-2001 deflation, the stock market crash, the intense regulatory backlash and 9/11, established businesses like those surveyed in Friday's jobs report have been unusually cautious about the outlook. Though new surveys show rising business confidence, companies have preferred cash over inventory, investments and employees.
In the aggregate, businesses normally invest more than their cash flow, adding debt as they grow. The last year has seen a remarkable degree of corporate caution, with growth in new investment falling well short of the growth in cash flow for the first time on record. This also shows up in the record-low level of inventories relative to sales in recent months, and in the reluctance of established businesses to hire when bad memories of the 2000-2001 downsizing are still fresh.
The good news is that companies now have much higher cash balances and much lower inventories than usual. Delivery times are rising rapidly, creating the prospect that underinvestment may be as costly now as overinvestment used to be. The result will probably be a snapback, with Friday's evidence of job growth a possible trigger for added corporate investment.
Underlying the debate over the stock market, the jobs report and the election is a fundamental question about the nature of the outlook. Is this a durable expansion built on small businesses, a flexible labor force, innovation and lower tax rates? Or is it, as some still argue, a "jobless recovery" led by a temporary consumption binge and fueled by debt, tax rebates and mortgage refinancings? I think the data clearly point to the former interpretation and refute the latter.
By itself, the Friday jobs report won't decide the debate. The jobs report isn't a defining indicator of the economy or the election. It's really the other way around. Job growth comes from a strong economy and good economic policies, especially reasonable tax rates and a stable dollar. In 2004, the U.S. economy is enjoying a durable expansion, with low unemployment by historical standards. Even lower would be better.
The political charge is that previous recoveries created more jobs than this one. There are many problems with this contention, but the big-picture error is that previous recoveries took place at higher unemployment levels, were caused by inflation, and aren't comparable. It doesn't make much sense to compare today's job growth rate, when unemployment is 5.7%, to 1984's recovery, when unemployment was at 7.5%.
Indeed, for more than 20 years, the U.S. has enjoyed a declining unemployment rate trend. The peaks in unemployment following a recession have been steadily lower, as have been the troughs in the heart of the expansions. The trend underpins high levels of investment, consumption and land values and protects the dollar from the believers in the "dollar crash" scenario.
The establishment survey suffers from over-hype. In a given quarter, more than 7.5 million jobs are created and roughly that number lost, with the difference -- 179,000 in the fourth quarter, 513,000 more in the first quarter -- being the job growth shown in the establishment survey. It is based on a statistical sample seeking to measure small changes in a large number, the 131 million U.S. non-farm labor force. It's like taking the temperature in one city per state, then asking people to guess whether the average temperature for the whole nation is 51.3 degrees or 51.4 degrees.
It may take another year or more for economists to form a clear view on the strength and sustainability of the 2002-2004 expansion. I'd like to see the unemployment rate lower in coming months, but even at the current unemployment rate, the jobs report, combined with other strong data, raises the prospect that there has been a systematic underestimate of the strength and durability of the expansion, now two-and-a-half years old.
The underestimation stems from an insistence among analysts on comparing this cycle to previous ones, including the job-creation process. Macro-economics seems wedded to cycle theory, the idea that business cycles are similar. The problem is that the world is changing too fast to rely heavily on past cycles.
The current cycle is unique because of its deflationary nature, reflected even today in an out-of-touch 1% overnight interest rate. Unlike previous cycles, the strong-dollar deflation saw vast growth without much inflation and ended in an investment bubble. The downturn started in late 2000 with an unusually low 3.9% unemployment rate, which peaked at 6.3% in June 2003, further setting it apart.
Despite the naysayers, the recovery has become a durable expansion, with mild inflation and higher interest rates coming into view. In many ways, Friday's jobs report just confirms what we already knew from other data. The U.S. employment situation is strong, improving, and still the envy of the economic world.
Mr. Malpass is chief global economist at Bear, Stearns. |
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